The biggest flood of red ink the world has ever known by Mike Larson
How much is $1.186 trillion — or $1,186,000,000,000, written out the long way?
• It's more than the inflation-adjusted cost of the Vietnam ($698 billion) and Korean Wars ($454 billion).
• It's more than the Louisiana Purchase ($217 billion) and the Savings and Loan bailouts ($256 billion).
• It's greater than the 2007 Gross Domestic Product of all but 13 other countries in the world.
• It's equal to $3,881 for every man, woman, and child in the U.S.
• It could buy 189,760,000,000 bushels of wheat at recent prices. 26,893,424,036 barrels of oil. Or 1,581,333,333,333 cans of Diet Coke at my trusty vending machine in the break room.
Why do I bring this up? Because that $1.186 trillion figure is the projected 2009 deficit, according to the latest report from the Congressional Budget Office (CBO).
And it is downright scary.
These Numbers Are Big — Really Big!
That $1.186 trillion is such a large number — so out of control — that it's hard for most of us mere mortals to process it. Suffice it to say ... It's the biggest flood of budgetary red ink any country has ever seen in world history. And it makes last year's $455 billion deficit look like chump change.
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It's not just the absolute number, either ...
The projected 2009 figure is equal to about 8.3% of U.S. GDP. That tops the post-World War II record of 6% set in 1983.
Still not worried?
Then get a load of this:
The CBO estimate doesn't even include any potential stimulus package from Congress and the Obama administration.
We haven't gotten the final details of the stimulus plan. But it could cost anywhere from $675 billion to $1 trillion. That means the ultimate 2009 deficit could end up being larger by 60% ... 70% ... 80% ... or more!
Is the red ink a short-term problem, one that will soon go away? Not according to the CBO. Scroll through the agency's report — "The Budget and Economic Outlook: Fiscal Years 2009 to 2019" (available at: http://www.cbo.gov/ftpdocs/99xx/doc9957/01-07-Outlook.pdf) and you'll come to a nifty table on page 23.
It projects red ink as far as the eye can see: An ADDITIONAL $3.135 trillion from 2010 through 2019.
Source: CBO
Two possibilities could bail us out of this black hole of debt:
Congress and the incoming administration could really clamp down on spending going forward to stem the tide of red ink.
Or the stimulus plan could manage to completely offset all the credit, real estate, and economic problems, thereby leading to a windfall in tax receipts.
Both are highly unlikely ...
And if neither scenario comes about, this country's finances are going to be blown to hell for years and years to come.
Consequence-Free Borrowing Forever?Not Bloody Likely
Now if you're the type of person who believes consumers, corporations, or even sovereign nations can borrow money they don't have ... and spend far beyond their means ... for all eternity, then you can stop reading right now.
The amount of money Obama will need in 2009 scares the bejeezus out of me.
There's absolutely nothing to worry about.
But if you're like me, and you think numbers like $1.186 trillion are so far off the charts that they HAVE to have consequences, then you should be downright scared!
The government is already selling record amounts of debt at auction, day after day, week after week.
This week alone, Treasury sold $8 billion in 10-year TIPS and $24 billion in four-week bills on Tuesday ... $30 billion in 3-year notes and $35 billion in 70-day cash management bills on Wednesday ... and $16 billion of nominal 10-year notes on Thursday. And there's no end in sight.
Total net issuance could approach a mind-boggling $2 trillion by year's end!
At some point, investors are going to balk at all this issuance. They're going to choke on the massive amount of U.S. paper spilling out of Washington. They'll demand higher yields to buy our debt, driving bond prices down and interest rates up, just as I warned in my December 5, Money and Markets column, "The Biggest Bubble of All: Long-term Treasuries?".
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Heck, the day of reckoning could already be upon us ...
Thirty-year Treasuries plunged more than 3 points on New Year's Eve ... another 2 30/32 on January 2 ... a whopping 5 16/32 on January 5 ... and another 1 28/32 on January 7. They've lost almost 13 points in a virtual straight line, while yields on 10-year notes shot up from 2.25% to 2.5%.
My advice remains the same: Short-term Treasuries are fine as a place to park your keep safe money. But stay the heck away from long-term U.S. debt.
Until next time,
Mike
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
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Showing posts with label Mortgage. Show all posts
Showing posts with label Mortgage. Show all posts
Friday, January 09, 2009
Monday, August 25, 2008
The Greatest Bailout of All Time
The Greatest Bailout of All Time by Martin D. Weiss, Ph.D.
We are now witnessing a rapid-fire 1-2-3 chain reaction of events that's leading to the greatest government bailout of all time ...
Event #1. In the mortgage market, where this crisis first erupted, nearly half of all subprime loans issued in 2006 are now delinquent ... late payments on mid-quality "Alt-A" mortgages have soared 41.5% ... and delinquencies on prime jumbo mortgages are up a staggering 55.2% in the past 6 months.
Event #2. At Fannie Mae and Freddie Mac, responsible for over half of the nation's massive mortgage market, losses are mounting so quickly — and so obviously — that even their supposedly "safer" preferred shares are crashing in value:
As you can plainly see in the charts above, since their mid-May high, Fannie Mae's preferred shares (NYSE: FNM PH) are down a shocking 58.8%, falling almost as quickly as the common shares, which have lost 77% of their value.
Freddie Mac's preferred shares (NYSE: FRE PK) have plunged even more: Down 65.5%. (The Freddie common shares, meanwhile, have suffered an 89.6% wash-out!)
And all of this has happened just since May 15, a meager 102 days ago! All in two giant companies that were the darlings of Wall Street, the creation of Washington and supposedly among the most "conservative" investments in the world!
Event #3. At financial institutions across the country, these devastating losses in Fannie and Freddie paper are ripping through balance sheets like an F-5 tornado. That includes:
Sovereign Bank, the third largest savings and loan in the United States. In our "X" List video, we listed it as a prime candidate for bankruptcy because of its D+ rating and its big exposure to mortgages. Now, it's been revealed that Sovereign has a $632 million stake in Fannie and Freddie preferred shares — the same shares that have lost about two-thirds of their value just since May 15.
Hundreds of other banks and thrifts. They were encouraged by banking regulators to buy billions of dollars in similar Freddie and Freddie preferred shares. In fact, the regulators thought these investments were so reliable, they let the banks use them for capital that's required as a cushion against loan losses. They even allowed banks to take a tax break on 70% of these securities!
Countless U.S. brokerage firms, life and health insurers, property and casualty insurers. Some are in good shape. But many have loaded up with similar investments.
Major financial institutions overseas.
All assumed these shares were safe. All believed they were getting something akin to a government-guaranteed investment. All could be severely disappointed when they discover the truth.
Why a Federal Bailout IsBoth Inevitable and Imminent ...But Preferred Shareholders Could Be Very Disappointed
Last week, we heard a feverish crescendo of denials: At Fannie and Freddie, high-ranking company officials vehemently denied they were asking for a government bailout. At the Treasury Department, officials vehemently denied they were providing one. And everywhere, the more they denied, the more it was obvious that a bailout was both inevitable and imminent.
The big dilemma: In any federal bailout of this nature, if the government uses taxpayer dollars to support the value of high-ranking securities (like bonds), it simultaneously destroys the remaining value of the lowest-ranking securities (like common and preferred shares).
Why?
Because the kind of government bailout that's expected is, in itself, a tacit recognition that the companies are bankrupt. And if the companies are bankrupt, it means that, by definition, the shares in the company are worthless.
Right now, banks stuck with Fannie and Freddie preferred shares are hoping for a miracle. Since government regulators encouraged them to buy the Fannie and Freddie preferred shares in the first place, they're praying they will get some consideration.
Sure, these banks and other preferred shareholders are one rank above common shareholders in the pecking order of investors clamoring for a piece of whatever's left over. But they are also two ranks below senior debt holders.
Here's why I think they will be sorely disappointed: Just to bail out Fannie and Freddie's senior debt holders will be such a massive undertaking for the government, it's hard to imagine that there will be much money left over for preferred shareholders.
Moreover, given the magnitude of the collapse in the preferred shares that has taken place just since May 15, even if the government throws them a bone, it will hardly be enough to make up for all the losses they've already suffered in their Fannie and Freddie preferred shares.
End result: A Fannie Mae and Freddie Mac bailout may give temporary relief to some investors. But it will merely spread chaos among most others.
The Catch-22 Question: Where Does The FederalGovernment Draw The Line?
If the government bails out Fannie and Freddie, will it strictly provide temporary loans of Treasury securities like it has done with the big brokers? Or will it use taxpayer money to inject the permanent capital these companies now require for their long-term survival?
The temporary cash loans require little or no political debate. The Fed acts. The money comes. But the long-term capital investment opens up a pandora's box of objections from Congressional Republicans and Democrats fearful of a mass taxpayer rebellion right on the eve of a major election. Under enough pressure and duress, some money is bound to be forthcoming. But it's bound to have strings attached, including caps, time limits and other restrictions.
No matter what, any bailout will unleash a series of new questions with no answers:
What about Ford, GM and Chrysler?
Think a government bailout for Detroit is far-fetched? The auto executives certainly don't. In fact, just this past Friday, the Wall Street Journal reported that lobbyists for Detroit's Big Three were crowding into the offices of White House officials, U.S. Rep. John Dingell and other Michigan Democrats, giving them a heads up on a bailout proposal to be unveiled after Labor Day.
They want $25 billion in loans. They want to get the money for a cut-rate interest of just 4.5%, one-third what they're now paying. They even want the option to defer any and all payments for up to five years.
With their fortunes sinking fast, and with the nation's major brokers and mortgage lenders already needing handouts, Ford, GM and Chrysler have apparently decided to stake out their place on Uncle Sam's bread line before it gets too much longer.
What about the nation's airlines seeking to make an emergency crash landing?
What about the thousands of local governments that could soon be forced to cut essential services like waste collection or even homeland security?
What about brokers like Lehman Brothers, now scrambling for a foreign white knight to come to its rescue?
What about the big banks we told you about in The "X" List?
Like Fannie and Freddie, each and every one will make the argument that they're critical to the health of the economy and even national defense. All will want cash, loan guarantees, or direct capital injections.
Where will the government draw the line? How will it justify bailouts for some "absolutely essential" private companies but not others?
The answer, my friend, will surprise you.
Even with a Government Rescue,Fannie and Freddie Bond Investors Are STILL in Grave Jeopardy Because ...
1. The quantities of Fannie and Freddie bonds outstanding and needing government support are so massive. According to the Federal Reserve's recently released Flow of Funds (pdf page 96), agency- and GSE-backed securities — mostly issued by Fannie and Freddie — total a whopping $7.6 trillion, or $2.4 trillion MORE than the entire amount of Treasury securities outstanding.
2. These agency- and GSE-backed debts are held so widely around the world, no one in government can control who dumps what, how much, or when. U.S. Commercial banks hold $1 trillion.Insurance companies own another $518 billion. Broker and dealers own $268 billion. Foreign investors hold a whopping $1.5 trillion!
All it takes is for these investors to liquidate 10% of their holdings and the avalanche of supplies on the market would sink their value regardless of the government's efforts to shore up confidence in Fannie and Freddie.
3. Federal bailouts will sink the wobbly market for U.S. Treasury bonds. When private companies are failing, investors rush to the safety of the U.S. Treasury securities. But when the Treasury throws their money into failing companies, investors rush the other way.
Result: To the degree that the government bails out Fannie, Freddie, Detroit, Wall Street, or anyone else, investors in Treasury securities will rebel, dump their own holdings and drive the value of Treasury bonds into a tailspin like none other in history.
And here again, the quantities outstanding are massive ($5.3 trillion) ... the ownership worldwide is far-flung (including nearly half overseas) ... and the ability of the government to control the market, virtually nil.
So, yes, right now, the U.S. Treasury may come to the rescue of Fannie Mae and Freddie Mac debt holders, and these investors will rejoice.
But ultimately, in order to avoid a collapse in U.S. Treasury bonds themselves, the U.S. government will have to
Draw a line in the sand beyond which no more government rescues will be possible.
Let some of America's largest banks, brokers and other companies fail, liquidate their assets, and fade into history ...
Even abandon prior rescue efforts for the sake of saving the one institution it must keep solvent and liquid at all costs: The United States Government itself.
Your best course of action ...
Step 1.Get your savings out of danger and to safety immediately!
We showed you exactly how in our "X" List video.
If you missed it, turn up your computer speakers and click here to watch it now.
Several banks and one brokerage firm on our list are already failing. Others are likely to follow.
Step 2.Clean out your portfolioof financial stocks!
Over three years ago, in April of 2005, we told our Safe Money subscribers to avoid financial stocks like the plague. We even published a list of stocks to get the heck out of immediately. (See the exact reprint of the list at left.)
Nor were we just panning some fly-by-night upstarts. We were telling investors to sell the nation's biggest mortgage lenders like Countrywide Financial, New Century Financial and Washington Mutual ... the largest builders like Beazer Homes, D.R. Horton, and Toll Brothers ... even Fannie Mae and Freddie Mac.
The pundits said we were nuts. But the results prove otherwise:
Stock
Price in April 2005 When we said "SELL"
Latest Price*
% Change
Aames Investment Corp
8.00
3.52
-56.0%
Accredited Home Lenders
36.17
11.76
-67.5%
Beazer Homes USA Inc
50.39
6.56
-87.0%
Countrywide Financial Corp
31.80
4.25
-86.6%
D.R. Horton Inc
30.14
10.73
-64.4%
Fannie Mae
53.24
4.40
-91.7%
Fidelity National
26.00
13.13
-49.5%
Freddie Mac
60.85
3.25
-94.7%
Fremont General Corp
22.04
0.22
-99.0%
General Motors Corp
29.38
10.16
-65.4%
Golden West Financial Corp
60.14
77.25
+28.5%
H&R Block Inc
25.18
24.93
-1.0%
KB Home
59.50
17.41
-70.7%
MDC Holdings Inc
71.11
39.64
-44.3%
MGIC Investment Corp
61.03
6.82
-88.8%
New Century Financial Corp
46.54
0.01
-100.0%
Novastar Financial Inc
36.33
1.10
-97.0%
PHH Corp
21.70
16.63
-23.4%
PMI Group Inc
37.81
3.22
-91.5%
Pulte Homes Inc
37.13
12.77
-65.6%
Radian Group Inc
47.30
3.31
-93.0%
Ryland Group Inc
62.93
19.70
-68.7%
Toll Brothers Inc
40.12
21.76
-45.8%
Washington Mutual Inc
39.34
4.10
-89.6%
Wells Fargo & Company
29.72
28.92
-2.7%
* For companies still trading, reflects closing price of 8/20/08. If companies that failed or were taken over, reflects last price at that time.
Since that time, almost all of the stocks we panned have crashed and burned:
Countrywide Financial has fallen 86.6% ...
New Century Financial shareholders have been 100% wiped out, and ...
Washington Mutual investors have seen 89.6% of their money go down the drain.
What about Fannie Mae and Freddie Mac, now at the core of the crisis? They were also on our April 2005 list of financial stocks to dump. And since that date, their common shares have fallen 91.7% and 94.7%, respectively.
With these huge declines, you may think it's now too late to sell your remaining financial stocks. But the fact is, many are still trading at absurdly high price levels. And even those that have been beaten to a pulp could fall another 80% or 90% in value.
Step 3. If you have other assets at risk — stocks, real estate or business properties — hedge against possibly devastating losses ahead with inverse ETFs in the weakest stock market sectors. Or better yet, if you've cleaned out all of your vulnerable assets, use those same ETFs to turn this dramatic situation into an equally dramatic profit opportunity.
We have a new set of urgent recommendations going to our Safe Money subscribers tomorrow afternoon. So if you want to get them, your deadline for signing up is 12 Noon Eastern Time. Click here to join now. Or click here for our complete report on this opportunity.
Good luck and God bless!
Martin
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
We are now witnessing a rapid-fire 1-2-3 chain reaction of events that's leading to the greatest government bailout of all time ...
Event #1. In the mortgage market, where this crisis first erupted, nearly half of all subprime loans issued in 2006 are now delinquent ... late payments on mid-quality "Alt-A" mortgages have soared 41.5% ... and delinquencies on prime jumbo mortgages are up a staggering 55.2% in the past 6 months.
Event #2. At Fannie Mae and Freddie Mac, responsible for over half of the nation's massive mortgage market, losses are mounting so quickly — and so obviously — that even their supposedly "safer" preferred shares are crashing in value:
As you can plainly see in the charts above, since their mid-May high, Fannie Mae's preferred shares (NYSE: FNM PH) are down a shocking 58.8%, falling almost as quickly as the common shares, which have lost 77% of their value.
Freddie Mac's preferred shares (NYSE: FRE PK) have plunged even more: Down 65.5%. (The Freddie common shares, meanwhile, have suffered an 89.6% wash-out!)
And all of this has happened just since May 15, a meager 102 days ago! All in two giant companies that were the darlings of Wall Street, the creation of Washington and supposedly among the most "conservative" investments in the world!
Event #3. At financial institutions across the country, these devastating losses in Fannie and Freddie paper are ripping through balance sheets like an F-5 tornado. That includes:
Sovereign Bank, the third largest savings and loan in the United States. In our "X" List video, we listed it as a prime candidate for bankruptcy because of its D+ rating and its big exposure to mortgages. Now, it's been revealed that Sovereign has a $632 million stake in Fannie and Freddie preferred shares — the same shares that have lost about two-thirds of their value just since May 15.
Hundreds of other banks and thrifts. They were encouraged by banking regulators to buy billions of dollars in similar Freddie and Freddie preferred shares. In fact, the regulators thought these investments were so reliable, they let the banks use them for capital that's required as a cushion against loan losses. They even allowed banks to take a tax break on 70% of these securities!
Countless U.S. brokerage firms, life and health insurers, property and casualty insurers. Some are in good shape. But many have loaded up with similar investments.
Major financial institutions overseas.
All assumed these shares were safe. All believed they were getting something akin to a government-guaranteed investment. All could be severely disappointed when they discover the truth.
Why a Federal Bailout IsBoth Inevitable and Imminent ...But Preferred Shareholders Could Be Very Disappointed
Last week, we heard a feverish crescendo of denials: At Fannie and Freddie, high-ranking company officials vehemently denied they were asking for a government bailout. At the Treasury Department, officials vehemently denied they were providing one. And everywhere, the more they denied, the more it was obvious that a bailout was both inevitable and imminent.
The big dilemma: In any federal bailout of this nature, if the government uses taxpayer dollars to support the value of high-ranking securities (like bonds), it simultaneously destroys the remaining value of the lowest-ranking securities (like common and preferred shares).
Why?
Because the kind of government bailout that's expected is, in itself, a tacit recognition that the companies are bankrupt. And if the companies are bankrupt, it means that, by definition, the shares in the company are worthless.
Right now, banks stuck with Fannie and Freddie preferred shares are hoping for a miracle. Since government regulators encouraged them to buy the Fannie and Freddie preferred shares in the first place, they're praying they will get some consideration.
Sure, these banks and other preferred shareholders are one rank above common shareholders in the pecking order of investors clamoring for a piece of whatever's left over. But they are also two ranks below senior debt holders.
Here's why I think they will be sorely disappointed: Just to bail out Fannie and Freddie's senior debt holders will be such a massive undertaking for the government, it's hard to imagine that there will be much money left over for preferred shareholders.
Moreover, given the magnitude of the collapse in the preferred shares that has taken place just since May 15, even if the government throws them a bone, it will hardly be enough to make up for all the losses they've already suffered in their Fannie and Freddie preferred shares.
End result: A Fannie Mae and Freddie Mac bailout may give temporary relief to some investors. But it will merely spread chaos among most others.
The Catch-22 Question: Where Does The FederalGovernment Draw The Line?
If the government bails out Fannie and Freddie, will it strictly provide temporary loans of Treasury securities like it has done with the big brokers? Or will it use taxpayer money to inject the permanent capital these companies now require for their long-term survival?
The temporary cash loans require little or no political debate. The Fed acts. The money comes. But the long-term capital investment opens up a pandora's box of objections from Congressional Republicans and Democrats fearful of a mass taxpayer rebellion right on the eve of a major election. Under enough pressure and duress, some money is bound to be forthcoming. But it's bound to have strings attached, including caps, time limits and other restrictions.
No matter what, any bailout will unleash a series of new questions with no answers:
What about Ford, GM and Chrysler?
Think a government bailout for Detroit is far-fetched? The auto executives certainly don't. In fact, just this past Friday, the Wall Street Journal reported that lobbyists for Detroit's Big Three were crowding into the offices of White House officials, U.S. Rep. John Dingell and other Michigan Democrats, giving them a heads up on a bailout proposal to be unveiled after Labor Day.
They want $25 billion in loans. They want to get the money for a cut-rate interest of just 4.5%, one-third what they're now paying. They even want the option to defer any and all payments for up to five years.
With their fortunes sinking fast, and with the nation's major brokers and mortgage lenders already needing handouts, Ford, GM and Chrysler have apparently decided to stake out their place on Uncle Sam's bread line before it gets too much longer.
What about the nation's airlines seeking to make an emergency crash landing?
What about the thousands of local governments that could soon be forced to cut essential services like waste collection or even homeland security?
What about brokers like Lehman Brothers, now scrambling for a foreign white knight to come to its rescue?
What about the big banks we told you about in The "X" List?
Like Fannie and Freddie, each and every one will make the argument that they're critical to the health of the economy and even national defense. All will want cash, loan guarantees, or direct capital injections.
Where will the government draw the line? How will it justify bailouts for some "absolutely essential" private companies but not others?
The answer, my friend, will surprise you.
Even with a Government Rescue,Fannie and Freddie Bond Investors Are STILL in Grave Jeopardy Because ...
1. The quantities of Fannie and Freddie bonds outstanding and needing government support are so massive. According to the Federal Reserve's recently released Flow of Funds (pdf page 96), agency- and GSE-backed securities — mostly issued by Fannie and Freddie — total a whopping $7.6 trillion, or $2.4 trillion MORE than the entire amount of Treasury securities outstanding.
2. These agency- and GSE-backed debts are held so widely around the world, no one in government can control who dumps what, how much, or when. U.S. Commercial banks hold $1 trillion.Insurance companies own another $518 billion. Broker and dealers own $268 billion. Foreign investors hold a whopping $1.5 trillion!
All it takes is for these investors to liquidate 10% of their holdings and the avalanche of supplies on the market would sink their value regardless of the government's efforts to shore up confidence in Fannie and Freddie.
3. Federal bailouts will sink the wobbly market for U.S. Treasury bonds. When private companies are failing, investors rush to the safety of the U.S. Treasury securities. But when the Treasury throws their money into failing companies, investors rush the other way.
Result: To the degree that the government bails out Fannie, Freddie, Detroit, Wall Street, or anyone else, investors in Treasury securities will rebel, dump their own holdings and drive the value of Treasury bonds into a tailspin like none other in history.
And here again, the quantities outstanding are massive ($5.3 trillion) ... the ownership worldwide is far-flung (including nearly half overseas) ... and the ability of the government to control the market, virtually nil.
So, yes, right now, the U.S. Treasury may come to the rescue of Fannie Mae and Freddie Mac debt holders, and these investors will rejoice.
But ultimately, in order to avoid a collapse in U.S. Treasury bonds themselves, the U.S. government will have to
Draw a line in the sand beyond which no more government rescues will be possible.
Let some of America's largest banks, brokers and other companies fail, liquidate their assets, and fade into history ...
Even abandon prior rescue efforts for the sake of saving the one institution it must keep solvent and liquid at all costs: The United States Government itself.
Your best course of action ...
Step 1.Get your savings out of danger and to safety immediately!
We showed you exactly how in our "X" List video.
If you missed it, turn up your computer speakers and click here to watch it now.
Several banks and one brokerage firm on our list are already failing. Others are likely to follow.
Step 2.Clean out your portfolioof financial stocks!
Over three years ago, in April of 2005, we told our Safe Money subscribers to avoid financial stocks like the plague. We even published a list of stocks to get the heck out of immediately. (See the exact reprint of the list at left.)
Nor were we just panning some fly-by-night upstarts. We were telling investors to sell the nation's biggest mortgage lenders like Countrywide Financial, New Century Financial and Washington Mutual ... the largest builders like Beazer Homes, D.R. Horton, and Toll Brothers ... even Fannie Mae and Freddie Mac.
The pundits said we were nuts. But the results prove otherwise:
Stock
Price in April 2005 When we said "SELL"
Latest Price*
% Change
Aames Investment Corp
8.00
3.52
-56.0%
Accredited Home Lenders
36.17
11.76
-67.5%
Beazer Homes USA Inc
50.39
6.56
-87.0%
Countrywide Financial Corp
31.80
4.25
-86.6%
D.R. Horton Inc
30.14
10.73
-64.4%
Fannie Mae
53.24
4.40
-91.7%
Fidelity National
26.00
13.13
-49.5%
Freddie Mac
60.85
3.25
-94.7%
Fremont General Corp
22.04
0.22
-99.0%
General Motors Corp
29.38
10.16
-65.4%
Golden West Financial Corp
60.14
77.25
+28.5%
H&R Block Inc
25.18
24.93
-1.0%
KB Home
59.50
17.41
-70.7%
MDC Holdings Inc
71.11
39.64
-44.3%
MGIC Investment Corp
61.03
6.82
-88.8%
New Century Financial Corp
46.54
0.01
-100.0%
Novastar Financial Inc
36.33
1.10
-97.0%
PHH Corp
21.70
16.63
-23.4%
PMI Group Inc
37.81
3.22
-91.5%
Pulte Homes Inc
37.13
12.77
-65.6%
Radian Group Inc
47.30
3.31
-93.0%
Ryland Group Inc
62.93
19.70
-68.7%
Toll Brothers Inc
40.12
21.76
-45.8%
Washington Mutual Inc
39.34
4.10
-89.6%
Wells Fargo & Company
29.72
28.92
-2.7%
* For companies still trading, reflects closing price of 8/20/08. If companies that failed or were taken over, reflects last price at that time.
Since that time, almost all of the stocks we panned have crashed and burned:
Countrywide Financial has fallen 86.6% ...
New Century Financial shareholders have been 100% wiped out, and ...
Washington Mutual investors have seen 89.6% of their money go down the drain.
What about Fannie Mae and Freddie Mac, now at the core of the crisis? They were also on our April 2005 list of financial stocks to dump. And since that date, their common shares have fallen 91.7% and 94.7%, respectively.
With these huge declines, you may think it's now too late to sell your remaining financial stocks. But the fact is, many are still trading at absurdly high price levels. And even those that have been beaten to a pulp could fall another 80% or 90% in value.
Step 3. If you have other assets at risk — stocks, real estate or business properties — hedge against possibly devastating losses ahead with inverse ETFs in the weakest stock market sectors. Or better yet, if you've cleaned out all of your vulnerable assets, use those same ETFs to turn this dramatic situation into an equally dramatic profit opportunity.
We have a new set of urgent recommendations going to our Safe Money subscribers tomorrow afternoon. So if you want to get them, your deadline for signing up is 12 Noon Eastern Time. Click here to join now. Or click here for our complete report on this opportunity.
Good luck and God bless!
Martin
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
Saturday, August 23, 2008
Bad Credit Mortgage Loans
Bad Credit Mortgage Loans - How To Get Approved
Persistence is the key working toward getting approved for a bad credit mortgage loan. There are many factors that you, as a borrower have control over that can help you get approved faster and easier. There are guidelines that most sub-prime lenders go by that, if you know them, can help you move through the process without getting stuck, unable to get financing.
If you have a bankruptcy or foreclosure, even if they are recent, do not despair. Many sub-prime or bad credit mortgage lenders have what's called, guidelines for bankruptcy or foreclosure seasoning. That means that they have a set amount of time that must go by from the time of a bankruptcy or foreclosure before they will lend to a borrower. Usually this time is 2-3 years, but many sub-prime lenders have no seasoning time, which means, if your credit score is above a certain point, you could get approved the day after your bankruptcy discharge. Other sub-prime lenders have bankruptcy or foreclosure seasoning of 6 months or a year. The biggest factor here will be your credit score.
Sub-prime or bad credit mortgage lenders will look closely at your credit score. In order to get 100% financing with bad credit, lenders will usually need to see you have a credit score of at least 600 or higher. There are quite a few things you can do to raise your credit score to be above this 600 mark. Here are a few suggestions:
1. Check your credit report for inaccuracies. Make sure all accounts included in bankruptcies and foreclosures are reporting accurately. If they show up as an open collection or unpaid account, charge-off or something else, this could be unnecessarily hurting your credit score. It will look like another, separate credit blemish instead of just the one. Make sure the bankruptcies and foreclosures are reporting accurately. Make sure accounts that are paid off, show up as being paid off, or accounts that are closed, show up as being closed. 2. Pay-off any small collection accounts or past due accounts that you can. Every account that you pay off will help boost your score. Once you have done this, get a letter of notification that the account is paid off and talk to your lender. Most lenders have programs where they can, for a $75 fee per item, provide proof to the credit bureaus that an account has been paid off and have your credit and credit score appropriately adjusted within a day or two. This program is sometimes called a "wrap it up" service. If you are in a hurry to get financed, this may be worth it to you. 3. Pay down open credit line balances. If you can even pay down the balances on any open lines of credit, this will boost your credit score. Your credit score is lowered when lines of credit are maxed out. You can make good use of your money by paying down credit card balances to boost your score.
Once you have used some of these techniques to boost your credit score, be persistent about contacting and applying with many different bad credit mortgage lenders. Many bad credit mortgage loan brokers claim that if they can't do the loan, then no one can. That is simply not true. All mortgage loan brokers have connections with many different lenders and loan programs. What may be impossible with one, can be very possible with another broker. If your score is around 600 or slightly higher, you will probably have a pre-payment penalty. Pretty much all bad credit mortgage loans will come with a pre-payment penalty. Talk to your lender about the details of the pre-payment penalty. Find out how long the penalty will last and exactly how much money the penalty is. How much is the fine for pre-payment on the loan? This is an important factor to consider when comparing lenders.
To get a approved for a bad credit mortgage loan, be persistent, work on your credit score as much as you can to get it above that 600 mark and apply with or contact many lenders to compare mortgage loan programs.
Visit here to see a list of our recommended lenders for Recommended Refinance Mortgage Loans.
Carrie Reeder is the owner of http://www.abcloanguide.com. ABC Loan Guide is an informational loan website with informative articles, the latest finance news and lists of recommended mortgage lenders.
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Persistence is the key working toward getting approved for a bad credit mortgage loan. There are many factors that you, as a borrower have control over that can help you get approved faster and easier. There are guidelines that most sub-prime lenders go by that, if you know them, can help you move through the process without getting stuck, unable to get financing.
If you have a bankruptcy or foreclosure, even if they are recent, do not despair. Many sub-prime or bad credit mortgage lenders have what's called, guidelines for bankruptcy or foreclosure seasoning. That means that they have a set amount of time that must go by from the time of a bankruptcy or foreclosure before they will lend to a borrower. Usually this time is 2-3 years, but many sub-prime lenders have no seasoning time, which means, if your credit score is above a certain point, you could get approved the day after your bankruptcy discharge. Other sub-prime lenders have bankruptcy or foreclosure seasoning of 6 months or a year. The biggest factor here will be your credit score.
Sub-prime or bad credit mortgage lenders will look closely at your credit score. In order to get 100% financing with bad credit, lenders will usually need to see you have a credit score of at least 600 or higher. There are quite a few things you can do to raise your credit score to be above this 600 mark. Here are a few suggestions:
1. Check your credit report for inaccuracies. Make sure all accounts included in bankruptcies and foreclosures are reporting accurately. If they show up as an open collection or unpaid account, charge-off or something else, this could be unnecessarily hurting your credit score. It will look like another, separate credit blemish instead of just the one. Make sure the bankruptcies and foreclosures are reporting accurately. Make sure accounts that are paid off, show up as being paid off, or accounts that are closed, show up as being closed. 2. Pay-off any small collection accounts or past due accounts that you can. Every account that you pay off will help boost your score. Once you have done this, get a letter of notification that the account is paid off and talk to your lender. Most lenders have programs where they can, for a $75 fee per item, provide proof to the credit bureaus that an account has been paid off and have your credit and credit score appropriately adjusted within a day or two. This program is sometimes called a "wrap it up" service. If you are in a hurry to get financed, this may be worth it to you. 3. Pay down open credit line balances. If you can even pay down the balances on any open lines of credit, this will boost your credit score. Your credit score is lowered when lines of credit are maxed out. You can make good use of your money by paying down credit card balances to boost your score.
Once you have used some of these techniques to boost your credit score, be persistent about contacting and applying with many different bad credit mortgage lenders. Many bad credit mortgage loan brokers claim that if they can't do the loan, then no one can. That is simply not true. All mortgage loan brokers have connections with many different lenders and loan programs. What may be impossible with one, can be very possible with another broker. If your score is around 600 or slightly higher, you will probably have a pre-payment penalty. Pretty much all bad credit mortgage loans will come with a pre-payment penalty. Talk to your lender about the details of the pre-payment penalty. Find out how long the penalty will last and exactly how much money the penalty is. How much is the fine for pre-payment on the loan? This is an important factor to consider when comparing lenders.
To get a approved for a bad credit mortgage loan, be persistent, work on your credit score as much as you can to get it above that 600 mark and apply with or contact many lenders to compare mortgage loan programs.
Visit here to see a list of our recommended lenders for Recommended Refinance Mortgage Loans.
Carrie Reeder is the owner of http://www.abcloanguide.com. ABC Loan Guide is an informational loan website with informative articles, the latest finance news and lists of recommended mortgage lenders.
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